Euro zone finance ministers are starting their third attempt on Monday to resolve differences between creditor countries like Germany and the International Monetary Fund over the release of emergency aid for Greece. While ministers expressed confidence ahead of the meeting about being able to reach a joint position, the conversation in Brussels may be fairly contentious. A similar meeting last week had resulted in no resolution over the issue of whether some of Greek’s debt should be forgiven or if it should be given longer to meet fiscal targets.
Greece, whose economy has fallen nearly 25 percent in five years, is the area’s most heavily indebted country. The nation’s debt is forecast to peak at almost 190 percent of gross domestic product by next year, but policymakers are hoping to cut it to a more sustainable 120 percent within 8-10 years. A resolution will unlock Greece’s next loan installment worth 31.5 billion euros, but it could even receive a larger amount of about 44 billion euros from two additional installments that are due by the end of the year.
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Reaching an agreement on Monday was “important for Greece, important for Europe, and I want to encourage all the euro area member states and the IMF to go the last mile in order to find an agreement, in fact go the last centimeter,” Olli Rehn, the Union’s commissioner for economic and monetary affairs, said ahead of the meeting.
While the IMF believes the debt can only be brought under control if other euro zone countries write off some of their loans, most governments say such a move was not being considered for the moment. “It has been clearly stated,” European Central Bank vice-president Vitor Constancio told reporters, according to Reuters. “It is not on the table. Everything else is just rumors.”
Some of the recommended alternative measures include a reduction of interest rates on loans and a debt buy-back by Greece. The first option would entail reducing interest on existing bilateral loans from the current 150 basis points above financing costs, though the level of reduction is not yet decided. Another possibility is to defer interest payments by 10 years, but not all euro zone central banks are willing to let go of profits. According to German central bank governor Jens Weidmann, Greece could earn a reduction in debt in a few years if it implements all reforms expected of it.